Just when Lumber Liquidators Holdings Inc (NYSE:LL) is preparing to give a business update, which is essentially a response to the recent attacks on the quality of its products, it has a new defender. Hedge fund manager, Robert Chapman, of Chapman Capital, came to the defense of the embattled Lumber.
A report on “60 Minutes” segment recently raised serious questions about the quality standards of the flooring products that Lumber obtains from China and sells in the U.S.
According to the report, some of the flooring materials sold by Lumber Liquidators Holdings Inc (NYSE:LL) in California were found to contain higher than accepted levels of chemical called formaldehyde. The report further claimed that Lumber is able to generate huge profits because of the unsafe and cheap flooring materials it gets from China.
Nothing strange with profit margins
However, Chapman noted that increases Lumber’s profit margins have always followed the trend similar to that of other players in the flooring business. Such include Home Depot Inc (NYSE:HD) and Wal-Mart Stores, Inc. (NYSE:WMT).Chapman has a long position in Lumber, accumulated amid
A number of hedge fund managers and some large investors have also thrown their weight behind Lumber. Many of them have questioned the veracity of the test that showed Lumber’s materials to be out of touch with the quality standards.
Some have urged that the method of the study that showed higher levels of formaldehyde in Lumber’s flooring materials was faulty. When it comes to testing of flooring products, the law requires using a piece of the core material before the financial part is glued on top. That means that taking the pieces apart and testing each individually is a flawed process.
The deal is clean
Lumber Liquidators Holdings Inc (NYSE:LL) maintains that it has not sold unsafe laminate flooring materials in the U.S. In fact, the company says it has the documentation to show that its products meet quality standards. The company has scheduled to respond to the allegations during today’s business update. Lumber, which blames short-sellers for its predicaments, will also update on its liquidity.